New Communist Party chief Xi Jinping said on Tuesday the Chinese government aimed to stabilise exports and make policies more targeted and effective, which prompted early strength in oil and equities.

"Chinese sentiment is pulling markets in general higher, and this is due to the statement from the new Chinese leadership with regards to maintaining a stable environment during 2013," Filip Petersson, an analyst at SEB in Stockholm, said.

Brent was still well below Monday's high above $112 per barrel, and price gains were capped as news of a sharp fall in euro zone retail sales increased worries about demand.

The volume of retail trade in the 17-member euro zone fell 1.2 percent in October from September, the biggest drop since April.

The euro zone's economy, which generates about a fifth of global output, slipped into recession in the third quarter of this year and is expected to contract for all of this year.

"It's a stalemate. There was some hopeful data from the U.S. last week and positive noise from China (this week), but Europe's a big worry," said Richard Langkemper, an analyst at Argos North Sea Group in Rotterdam.

Similarly, data in the United States also pointed to challenging economic conditions that could limit demand for oil.

U.S. private-sector employers added 118,000 jobs in November, shy of economists' expectations, a report by a payrolls processor showed.

Political and civil unrest in Egypt and Syria and a running dispute between Iran and the United States over Iran's nuclear programme have threatened to disrupt exports from the Middle East, triggering worries about supply.

"Media coverage is significantly increasing on the Syrian chemicals (weapons), and we need to keep in mind that the threat about the potential use of weapons of mass destruction have been in the past justification for intervention," said Olivier Jakob from Petromatrix consultancy in a research note.

Iran said on Tuesday it had captured a U.S. intelligence drone in its airspace, but the White House said there was no supporting evidence.

Elsewhere in the region, Israel announced that it remained committed to the peace process with the Palestinians, briefly sending oil prices lower.

Indicating that a solution seems distant, however, the European Union has summoned Israel's ambassador to discuss the bloc's concerns over Israeli plans to expand its settlements in the West Bank.

U.S. STILL IN FOCUS

Gains in oil prices were also limited by worries that any delay in an agreement to avert a fiscal crisis in the United States may push the world's top oil consumer into recession, darkening the outlook for demand.

U.S. President Barack Obama and Republican lawmakers are locked in a battle over measures to avert the so-called "fiscal cliff" at the end of the year, a programme of $600 billion of spending cuts and tax increases.

Data from the American Petroleum Institute showed that total U.S. stockpiles dropped by 2.2 million barrels in the week to Nov. 30.

The Energy Information Administration (EIA) will release its weekly data later on Wednesday, after analysts forecast a 300,000 barrel drop in U.S. stockpiles. (Additional reporting by Ramya Venugopal in Singapore; editing by Keiron Henderson and Jane Baird)